Tax Authority proposes flight tax to cover environmental costs

Ahead of discussions on the upcoming state budget, the Tax Authority published a comprehensive position paper on Sunday, prepared by its Planning and Economy Division, presenting a proposal for taxing departing flights from Israel. According to the authority's estimates, the move is expected to generate approximately NIS 1.1 billion annually for state coffers, based on 2025 prices.Until now, Israel's aviation sector has been virtually untaxed for negative external effects.

Unlike land transportation or industrial sectors, value-added tax on international flights is set at zero percent because it applies only to consumption within the country's borders, and jet fuel is exempt from excise duty.

The Tax Authority noted that the measure is intended to prompt the aviation sector to internalize the external costs it generates, which include contributing to global warming, local air pollution, and takeoff and landing noise that harms the health of residents surrounding Ben-Gurion Airport.How the mechanism will work: A tax based on weight and distanceThe document examined several alternatives, including imposing a per-passenger tax or altering fuel excise duties, but the central recommendation is to choose the alternative involving a tax on every departing aircraft based on its weight category and distance category.

This alternative was chosen due to its operational simplicity and the certainty it provides to airlines.Local flights (up to 500 kilometers): The tax per passenger will stand at approximately NIS 12 (starting from NIS 1,300 for a light aircraft).Short-to-medium-haul flights (such as to Europe and the Gulf states): The tax per passenger will stand at approximately NIS 58 (ranging from NIS 4,452 to approximately NIS 16,943 per aircraft, depending on weight).Long-haul flights (such as to the US and East Asia): The tax per passenger will stand at approximately NIS 274 (ranging from approximately NIS 15,871 to approximately NIS 100,000 for the largest aircraft weighing over 300 tons).An analysis of flight prices indicates that the proposed tax will constitute an addition of approximately 4% to 5% of the ticket price for the consumer.

By comparison, historical data shows that on a flight to London or Paris, the proposed tax would stand at approximately NIS 56 to NIS 73, and to New York at approximately NIS 223 to NIS 262 in economy class.Who will pay the tax?An analysis of departure data from the country shows that a quarter of the burden (25%) is expected to fall on foreign residents. Among the Israeli demographic clusters, roughly another quarter of the tax will be imposed on passengers from the top decile, and approximately another quarter on deciles 8-9.

The lower deciles are expected to bear only about 2% to 6% of the total tax burden.

The Tax Authority emphasizes that this mechanism joins a global trend, as leading countries such as Britain, France, Germany, the Netherlands, and Denmark already operate similar taxation mechanisms on departing flights in order to tackle the climate crisis and accelerate the transition to greener solutions in the aviation sector.